Opportunities to Provide Value-added Services by Applying Operations Accounting

Operations Accounting Course Objectives

• Learn what Operations Accounting is (A.K.A. Managerial Accounting).
• Consider the Value to the Client in Setting Up Operations Accounting.
• Address Chart of Accounts Strategies
• Learn what payroll items should be considered
• Learn why you Improve Productivity by Measuring OT, Billed vs. Unbilled Hrs., Waste & Rework
• Improve your effectiveness as an Accountant / CPA – Add Operations Accounting Methods to your repertoire.
• Consider how to introduce this approach to your clients.

“Remember that time is money.” – Benjamin Franklin 1748, Advice to a Young Tradesman

What is Operations Accounting

Most small to medium businesses have their Chart of Accounts set up primarily for Tax Mitigation, as well as Investor and Banking Concerns. This is a vital strategy needed to ensure financial health. Operations Accounting maintains these strategies and adds further breakouts of financial data that provide insight into how Operations are performing.

Operations Accounting seeks to measure Operational Key Performance Indicators and thereby makes the organization’s accounting system part of the company’s strategic plan that guides the future of a business via business operations.

Operations Accounting modifies the Chart of Accounts to provide more detail in Revenue, Cost of Sales (Cost of Goods Sold), and Expenses.

These breakouts are concerned with transactions affecting the impact and efficiency of Operations rather than how they affect tax liability or banking needs.

Both types of accounting are Important; however, the two approaches provide different perspectives and focus. You need a combined and coordinated accounting setup to prompt timely action on critical financial factors and ensure sustainable profitability and growth.

The 12 main components of Operational Accounting:

1. Analyzing existing Operations and correlating Operations Actions to Accounting Transactions.
2. Revising the Chart of Accounts to create sufficient detailed data related to Operations Performance (Accounts & Sub-accounts).
3. Creating Cost Codes that reflect all Operation Actions & Transactions. These cost codes direct financial transactions to the proper Account and provide desired breakouts in various Reports (in QuickBooks & Peachtree/Sage, these are called items).
4. Create additional Payroll Items that break out labor costs in desired detail.
5. Create a related Company & Department budget.
6. Create Project Budgets A.K.A. Bid (Proposal) Revenue-Cost Calculator
7. Create a Cash Flow Report that your client can manage.
8. Measure Billed vs. Unbilled & Regular vs. Overtime Labor Hours.
9. Create and/or retrieve Work in Progress / Process report.
10. Create & retrieve Project Estimate vs. Actual Reports
11. Provide adequate training so that your client understands the new system.
12. Review the data each payroll period, or at least weekly & monthly.

Essential Concepts in Operations Accounting

• In Operations Accounting, it is essential that the users understand the use of Direct vs. Indirect and/or Variable vs. Fixed Costs.
• Another critical element is calculating the Overhead Factor.
• Further, it is necessary to understand the True Markup factor to realize an actual Net Profit as expected.

These factors ensure that the company sees the planned revenue, costs, and Net Profit as proposed (assuming the labor, materials, subcontractors, and supplies come in as calculated for the proposal).

Contrasting Operational and the more common Financial Accounting
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Accounting Changes Required
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Examples
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Summary:

If you master these techniques and adequately train your client, you can significantly make a positive difference to your client’s control over their finances and Net Profitability.

These methods most always help your clients improve their productivity as Operation Accounting provides visibility into the labor productivity performance. The Added focus tends to get Business Owners moving toward improvement.

Your services will be more Value-Added than many, if not most, of your competitors.

I like WIN-WIN Scenarios, don’t you?!?

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